Abstract
Based on the data of China's listed banks from 2010 to 2018, this paper uses panel data model and threshold model to examine the impact of profitability on credit risk of commercial banks. The results show that: (1) After controlling the influence of bank size, the growth rate of net profit is negatively correlated with credit risk; (2) With the same growth rate of net profit, the larger the bank scale, the smaller the credit risk. At the same time, with the decrease of the growth rate of net profit, the influence of bank size on credit risk increases; (3) When the bank scale is large enough, the growth rate of net profit is positively correlated with the credit risk of the bank. This paper discusses the interaction between bank size and profitability and credit risk, which is of guiding significance to banks’ risk management.
Highlights
In the 2019 executive report of monetary policy, on the basis of the original monetary policy objectives such as "maintaining reasonable and stable liquidity", the central bank specially proposed that "we should grasp the rhythm and strength of risk disposal, timely resolve the liquidity risk of small and medium-sized financial institutions, and resolutely block the spread and spread of risk"
The result shows that the growth rate of net profit is significantly negative related to the distance of default, significantly positive related to credit risk, indicating that the impact of listed banks’ net profit on credit risk is mainly negative
When bank size large enough, the partial derivative of PGR will be negative, meaning a positive relationship between net profit growth rate and credit risk. This suggests that the increase of net profit may lead to the increase of credit risk when the scale of the bank is large enough
Summary
In the 2019 executive report of monetary policy, on the basis of the original monetary policy objectives such as "maintaining reasonable and stable liquidity", the central bank specially proposed that "we should grasp the rhythm and strength of risk disposal, timely resolve the liquidity risk of small and medium-sized financial institutions, and resolutely block the spread and spread of risk". This paper mainly expands in two aspects. We describe the relationship between net profit growth rate and bank credit risk in detail by using the data of 16 listed banks. We test the threshold effect of net profit growth on banks’ credit risk because of different size. The rest of this paper is arranged as follows: the second part is literature review and research hypothesis, the third part is research design, the fourth part is empirical results and analysis, the fifth part is conclusions and suggestions
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